Nicollet Mall Economic Impact Study

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An economic impact study on the proposed Nicollet Mall redesign


<ul><li><p>ECONOMIC IMPACT OF NICOLLET MALL RECONSTRUCTION</p><p>Prepared for the City of MinneapolisMarch, 2014</p><p>Redevelopment Economics, Finance and Strategy</p><p>2288 University Ave WestSaint Paul, MN 55114</p><p>ph)</p></li><li><p>INTRODUCTIONNicollet Mall is a twelve-block pedestrian and transit mall that since its 1968 construction, has </p><p>served as a prominent symbol of Minnesota and its largest city, Minneapolis. During a period </p><p>of stress on downtown retail and commercial districts, public and private investment in Nicollet </p><p>Mall and adjacent structures helped to sustain downtown as a bulwark of the regional and state </p><p>economy. Today, national market trends in housing and office are shifting, and remarkable </p><p>growth in downtown Minneapolis presents a clear example of this change. Building on the </p><p>public-private partnership model that put the mall in place in 1968, the City of Minneapolis, </p><p>Minneapolis Downtown Council, and other private partners are collaborating to propose a $50 </p><p>million reconstruction of Nicollet Mall.</p><p>The City has commissioned a targeted economic impact analysis to evaluate existing market </p><p>trends and quantify certain economic effects of the reconstruction project. This report summarizes </p><p>research and analysis conducted on an area comprised of over 2,000 parcels across 47 city </p><p>blocks.</p><p>HISTORY AND PLANS FOR REINVENTIONNicollet Avenues importance as a commercial spine in </p><p>Minneapolis dates to the 19th century, when value of the street </p><p>frontage supported early development of retailers such as </p><p>Daytons, Donaldsons and Powers. By the mid-1950s, many </p><p>residents of the region were choosing to leave previously </p><p>established neighborhoods for suburban areas, where more </p><p>dispersed housing was coupled with shopping centers easily </p><p>accessible by car. In response, civic and business leaders in </p><p>Minneapolis proposed and in 1968 constructed the nations </p><p>first transit mall extending from Washington Avenue to 12th </p><p>Street, to strengthen appeal both for retail and downtown investment.</p><p>Over nearly half a century, Nicollet Mall presented a model that inspired many other American </p><p>cities to introduce transit malls into their downtown landscape, including comparable cities </p><p>of Denver, Chicago, Portland, and Madison. Several of these systems have, over time, been </p><p>dismantled and returned to general use by cars, a concept considered and rejected in the past </p><p>in Minneapolis. Nicollet spans across the densest concentration of jobs and market value in the </p><p>state. Its reconstruction and elevation as a must-see destination is presented as a top priority </p><p>in the Intersections Downtown 2025 Plan developed by the Minneapolis Downtown Council, </p><p>and adopted by public and private stakeholders. </p><p>In 2013, the City of Minneapolis coordinated a Nicollet Mall design competition to invite p</p><p>roposals for the streets future. The selected proposal, submitted by James Corner Field </p><p>Operations, has been adopted by the City and its private sector partners as the framework for </p><p>investment and reconstruction of Nicollet Mall. </p><p>2 ECONOMIC IMPACT OF NICOLLET MALL RECONSTRUCTION</p></li><li><p>NICOLLET IN CONTEXT Downtown Minneapolis, surrounding Nicollet as a central north-south connection, </p><p>maintained more stability as a center of trade and employment through the </p><p>mid- to late-20th century than many similar central business districts. Recent years </p><p>have brought a significant and visible increase in investment, primarily by private </p><p>parties in residential and office development, and firms moving to or expanding </p><p>in downtown Minneapolis. Over 130,000 people work in downtown Minneapolis </p><p>each day, reflecting both stable small firm activity and continued investment in </p><p>downtown employment locations by larger employers such as Xcel Energy, US </p><p>Bancorp, Ameriprise, Wells Fargo, and Target. Downtown, as a center for </p><p>headquarters within a region where 19 Fortune 500 firms are based, has benefited </p><p>from investment and activity required to provide research and development, </p><p>professional services, marketing and design, both to larger firms based in the </p><p>region and to larger external markets.</p><p>Goals established by the Downtown Council also suggest an opportunity to </p><p>maximize Nicollet Mall as a destination and amenity for residents. The Council is </p><p>targeting a doubling of downtown population to 70,000 residents, addition of </p><p>three million square feet of office space and 200,000 square feet of retail, and </p><p>introduction of 1,100 hotel rooms into the downtown market. The need to </p><p>leverage Nicollet Mall as a public square, providing public space for this range of </p><p>users, is expected to grow with the added concentration of people downtown. </p><p>PROPOSED RECONSTRUCTIONThe City of Minneapolis and the Minneapolis Downtown Council propose to take advantage </p><p>of the need to reconstruct Nicollet Mall, by drawing on forward-thinking design that reflects </p><p>a range of current and intended uses. The proposal, developed by design firm James Corner </p><p>Field Operations, is intended to emphasize the close proximity of the Mississippi River, the core </p><p>of the downtown business district, and the Loring Park area. More specifically, the plan focuses </p><p>on three sections to propose changes to Nicollet Mall:</p><p> Build a Mississippi Woods segment along the northern section of Nicollet between </p><p> Washington Avenue and 4th Street, to provide public space for new development </p><p> that includes a 26-story apartment tower, recently announced development of the </p><p> Ritz Block, expected expansion of Xcel headquarters, and the Minneapolis Central</p><p> Library. Adding trees and gardens, performance space and lighting, and maintaining </p><p> street right of way for bicycles and buses is designed to support projected residential </p><p> and office growth in this zone of Nicollet.</p><p> Prioritize the heavily used middle segment between 6th and 8th Streets by establishing </p><p> the Nicollet Island area, to support the core of the downtown Minneapolis employment </p><p> concentration. Reconstruction in this segment is proposed to include wide stairways </p><p> facing each other and connecting the skyway level and street level, with intermediate </p><p> space used for the farmers market and seasonal events and amenities. </p><p> ECONOMIC IMPACT OF NICOLLET MALL RECONSTRUCTION 3</p></li><li><p> Highlight Nicollets arts and entertainment focus, and point toward Loring Park, by</p><p> creating the Loring Woods segment south of 12th Street. This section is proposed to </p><p> include a wide variety of tree types and sizes, to provide a destination for visitors, </p><p> residents and workers downtown.</p><p>The City and the Minneapolis Downtown Council have together proposed financing the $50 </p><p>million reconstruction project with public and private sources:</p><p>Assessments are expected to be used to raise capital from benefiting owners of property on </p><p>and near Nicollet Mall.</p><p>4 ECONOMIC IMPACT OF NICOLLET MALL RECONSTRUCTION</p></li><li><p>ECONOMIC BENEFITS OF NICOLLET RECONSTRUCTIONThe reconstruction of Nicollet Mall has been designed and proposed as an investment in a next </p><p>era of use and success for downtown Minneapolis. Over the last 45 years, Nicollet Mall has </p><p>provided a unique addition to the central business districts network as downtowns only transit </p><p>and pedestrian mall. Following a protracted public dialogue about the transition of Nicollet to</p><p>transit mall, the new malls transformation prompted $50 million of redevelopment in the </p><p>following three years.</p><p>The current proposal is to reconstruct Nicollet Mall, rather than transition from typical street to </p><p>transit and pedestrian mall. The opportunity is also different: The reconstruction is proposed </p><p>to support and coincide with a marked increase in the development appetite for residences </p><p>and office uses downtown, particularly along Nicollet. As a result, economic benefits will be </p><p>directly produced by, or in other cases supported by, the reconstruction of Nicollet Mall. These </p><p>benefits are produced primarily in six interconnected ways that merit individual discussion.</p><p>Stimulating statewide business activity and employment. Initial economic impact of the Nicollet Mall reconstruction will occur during design and construction of the project. The budgeted </p><p>$50 million of spending will flow through the economy, creating additional economic activity </p><p>and jobs in the Minneapolis-Saint Paul region and statewide. These impacts will occur in the </p><p>construction sector and in other sectors, as dollars are spent and cycle through the regional </p><p>economy. The estimated economic consequence of the $50 million reconstruction is $105.5 </p><p>million in additional spending within Minnesota, and creation of 860 full-time equivalent jobs (FTEs). </p><p>Expanding visitorship. Convention and meeting visitors attending events in downtown Min-neapolis are important to the Minneapolis-Saint Paul region, and to Minnesota. In 2012, nearly </p><p>28 million visitors spent $6.88 billion in the region. Visitors spend an average of $79 per day </p><p>of their visit, and an average over $185 per trip, excluding transportation costs. Nicollet Mall </p><p>reconstruction will strengthen the regions attractiveness for convention business, which could </p><p>translate to increased visitors over time. Such increases translate into elevated spending levels, </p><p>and additional collections of Minnesotas sales tax as well as local food, liquor and hotel sales </p><p>taxes. In 2010, business and visitor activity in the Nicollet Mall area generated $13.8 million </p><p>in city sales tax receipts, which are levied as 0.5% of sales. Citywide, local sales tax receipts </p><p>increased over 20% between 2004 and 2012, exceeding $32.5 million. The Nicollet Mall area </p><p>comprises a concentration of economic activity, helping drive the $485.5 million in Minnesota </p><p>sales taxes collected in 2011. The effects of increased visitorship, it should be noted, will unfold </p><p>over a longer time horizon than spending, development and tax base benefits also outlined in </p><p>this report. The longer time frame is due primarily to the extended planning schedule required </p><p>for convention business and time required for information about the experience to spread. </p><p>Sustaining current trends. Reconstruction of prominent public space on Nicollet will reinforce private redevelopment already underway. Such investments concentrate property value and </p><p>downtown residents, boosting state and local property and sales tax receipts. These trends are </p><p>exemplified by new construction of the Nic on Fifth, a 26-story, 253-unit apartment tower with </p><p>a reported construction budget of $76 million. Anticipated development on the majority of the </p><p>Ritz Block at Nicollet and 4th Street offers another example of new investment focused on the </p><p>Nicollet Mall spine.</p><p> ECONOMIC IMPACT OF NICOLLET MALL RECONSTRUCTION 5</p></li><li><p>Extending market certainty about downtown. The Nicollet reconstruction project also demonstrates an ongoing public commitment to the prominent landmark and property on the </p><p>blocks it connects between Washington Avenue and Grant Street. Implementation of a plan for </p><p>reconstruction adds certainty to decision making by individuals and organizations choosing to </p><p>live, locate or expand downtown or in alternative locations. Development projects anticipated</p><p>to move forward in the coming 24-36 months, sited on blocks facing Nicollet, represent an </p><p>estimated $185 million, including $145 million in publicized pre-development phase. An </p><p>additional $168 million in development is projected for those areas one block distant from </p><p>Nicollet Mall, including $112 million in a pre-development phase and expected in the market in the</p><p>next 24-36 months. Projects representing $35 million more are in semi-public discussion, but </p><p>not yet in pre-development. Office development currently underway and projected for the near</p><p>term, will provide office space estimated to add over 1,900 employees to downtowns job center.</p><p>Generating appreciation in property values. Studies demonstrate that improving street designs for pedestrians can produce market premiums </p><p>witnessed in higher lease rates and higher market values for nearby </p><p>property. Evaluations of comparable redesign efforts within commercial </p><p>districts point to lease rate and property value increases up to 5%, and </p><p>retail receipt increases up to 10%. For the purposes of this analysis, only </p><p>blocks facing Nicollet Mall or immediately adjacent have been considered, </p><p>as rendered in darker and lighter blue in the graphic. This analysis fore-</p><p>casts modest appreciation attributable to the Nicollet Mall reconstruction </p><p> of 1.0% for Nicollet-facing blocks, and 0.50% for adjacent blocks. At </p><p>this level of appreciation, property located within the blocks in the study </p><p>area is forecasted to grow in value by $57 million or more as a result of </p><p>Nicollet Mall reconstruction. </p><p>Compounding market value and property tax capacity. Downtown Minneapolis is well served by public utilities and transportation infrastructure, which elevate potential for continued </p><p>development. Residential and office growth near Nicollet Mall provides long-term tax capacity</p><p>for state and local property tax levies. Under Minnesota law, property taxes are levied on </p><p>residential and commercial property downtown by the City of Minneapolis, Hennepin County, </p><p>Minneapolis Public Schools, and multiple special districts. In addition, the State of Minnesota </p><p>collects a property tax on commercial property, including office and retail. </p><p>Tax base created by the development trends described above, and the appreciation attributable </p><p>to the Nicollet Mall reconstruction project, are estimated to generate additional annual property </p><p>tax revenues at todays tax rates:</p><p>6 ECONOMIC IMPACT OF NICOLLET MALL RECONSTRUCTION</p><p>$5,020,000 $3,445,000 $1,795,000 $680,000 $10,940,000 $2,170,000</p><p>City County School District Special Districts Total: Local Governments</p><p>State ofMinnesota</p><p>Projected Annual Property Tax Revenues</p></li><li><p>CONCLUSIONPublic and private parties are considering substantial investment in a $50 million reconstruc-</p><p>tion of Nicollet Mall, providing a new design and program for the 45-year-old transit mall. The </p><p>economic dynamics analyzed during this study include market momentum already occurring in </p><p>the project area, benefits of the reconstruction spending, and forecasted property appreciation </p><p>resulting from the improvements. These individual measures are summarized below:</p><p>Images: Minnesota Historical Society; Megan Dobratz; James Corner Field Operations</p><p>###</p><p> ECONOMIC IMPACT OF NICOLLET MALL RECONSTRUCTION 7</p><p>Direct, indirect and induced spending resulting from reconstruction $105.5 million</p><p>Statewide employment generated by project 860 FTEs*</p><p>Development currently underway on or adjacent to Nicollet Mall $76 million</p><p>Development anticipated in 24-36 months, on blocks facing Nicollet Mall $185 million</p><p>Development anticipated in 24-36 months, in areas one block distant $168 million</p><p>Estimated employees added in converted and new office space 1,900</p><p>Estimated appreciation of existing pr...</p></li></ul>